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AC 643

Advanced Auditing

QuestionAnswer
Fraud perpetrators look like a) look like other criminals b) have profiles that look like the most honest people c) are usually very young d) are none of the above B
Which of the following is NOT one of the three elements of the fraud triangle D
3. Which of the following is a common perceived pressure? a. The ability to outsmart others. b. Opportunity to cheat others. c. A financial need. d. The ability to “borrow” money by committing fraud. C
4. If pressures and opportunities are high and personal integrity is low, the chance of fraud is: a. High. b. Medium. c. Low. d. Very low A
5. Which of the following is probably the least com- mon type of fraud pressure? a. Vices. b. Work-related pressures. c. Financial pressures. d. Pressure to outsmart peers. D
6. Fraud opportunity involves: a. Opportunity to conceal fraud. b. Opportunity to avoid being punished for fraud. c. Opportunity to commit fraud. d. All of the above. e. None of the above. D
7. Which of the following is not one of the three elements of the control system of an organization? a. The control environment. b. The accounting system. c. Management. d. Control activities or procedures. C
Which of the following non-control factors provides opportunities for fraud? a. Inability to judge the quality of performance. b. Lack of access to, or asymmetrical, information. c. Failure to discipline fraud perpetrators. d. Lack of an audit trail. e. A E
9. Who generally has the highest risk of becoming a fraud victim? a. Businessperson. b. Older, less educated people. c. College students. d. None of the above. B
10. How frequently do most people rationalize? a. Often. b. Sometimes. c. Rarely. d. Never. A
11. Which of the following kinds of pressure is most often associated with fraud? a. Work-related pressures. b. Financial pressures. c. Vice pressures. d. None of the above. B
12. Which of the following is not a primary control activity? a. Use of documents and records to create an audit trail. b. Independent checks. c. Decreasing work-related pressure. d. Physical safeguards. C
13. It is the_____ and _____of existing controls, not the _____of controls, that allows most frauds to be perpetrated. a. Existence, use, lack. b. Lack, ignoring, existence. c. Overriding, ignoring, lack. d. Overriding, lack, use. C
14. On what element of the fraud triangle do most fraud-fighters usually focus all or most of their fraud preventive efforts? a. Perceived pressure. b. Perceived opportunity. c. Power structure. d. Rationalization. B
15. Which of the following is not an internal control activity (procedure)? a. System of authorizations. b. Appropriate hiring procedures. c. Independent checks. d. Documents and records. e. All of the above are internal control activities. B
16. Which of the following is not a common vice that motivates people to commit fraud? a. Gambling. b. Drugs. c. Expensive extramarital relationships. d. Alcohol. e. All of the above are vices that motivate people to commit fraud. E
17. Which of the following is not a way that management can establish a good internal control environment? a. Having a clear organizational structure. b. Proper training. c. Communicating openly. d. Appropriate hiring procedures. e. All of the above are w E
18. Which of the following is not an element of most frauds? a. Taking the assets. b. Concealment. c. Breaking and entering. d. Conversion. C
19. Which of the following is an example of legitimate power? a. The offer of valuable stock options. b. A decision to participate in fraud based upon fear. c. Your boss tells you to do something. d. You do something because your colleague is more knowled C
20. Which of the following is an example of referent power? a. Fear that you may lose your job. b. Your friend asks you to do a special favor for him or her. c. The offer of a job promotion. d. Your teacher asks you to do an assignment. B
1. The most effective way to reduce losses from fraud is: a. Detecting fraud early. b. Implementing proactive fraud detection programs. c. Preventing fraud from occurring. d. Severely punishing fraud perpetrators. C
2. To successfully prevent fraud, an organization must: a. Identify and remedy internal control weaknesses. b. Explicitly consider fraud risks. c. Take proactive steps to create the right kind of environment. d. All of the above. D
3. The best way for management to model appropriate behavior is to: a. Enforce a strict code of ethics. b. Set an example of appropriate behavior. c. Train employees about appropriate behavior. d. Make employees read and sign a code of conduct. B
4. Which of the following is not a proactive way for a company to eliminate fraud opportunities? a. Severely punishing fraud perpetrators. b. Assessing risks. c. Implementing appropriate preventive and detective controls d) creating a widespread monitorig A
5. Most frauds start small and: a)If not detected, continue to get larger. b. Usually decrease in amount. c. Remain steady and consistent. d. None of the above. A
6. Because of the ability to override internal controls, it is usually most difficult to prevent which type of fraud? a. Investment scams. b. Fraud committed by a company president. c. Employee fraud. d. Customer fraud. B
7. Which of the following refers to the circumstances, taken as a whole, that would lead a reasonable prudent professional to believe fraud has occurred, is occurring, or will occur? a. Evidential circumstance. b. Investigation. c. Invigilation. d. Predic D
8. A method of classifying investigative approaches into testimonial evidence, documentary evidence, physical evidence, and personal observations is referred to as the: a. Investigative square of evidence. b. Investigation square. c. Evidence square. d. F C
9. Usually, for everyone involved—especially victims— the investigation of fraud is very: a. Pleasant and relaxing. b. Educational. c. Exciting. d. Traumatic and difficult. D
10. To prevent fraud from reoccurring, most organizations and other fraud victims should: a. Take no legal action. b. Pursue only civil remedies. c. Pursue only criminal remedies. d. Pursue either civil or criminal action, depend- ing on the circumstances D
12. The tone at the top when related to fraud usually refers to management’s attitude about: a. How management labels appropriate behavior. b. Management’s attitude about fraud prosecution. c. Management’s attitude about employee absenteeism. d. How manag D
13. Research shows that fraud occurs less frequently when employees feel: a. Abused by management. b. Threatened. c. Challenged with unreasonable performance goals. d. Ownership in the organization. D
14. Opportunities to commit fraud can be eliminated by identifying sources of fraud, by implementing controls, and through independent checks. One other effective way of eliminating opportunities is: a. Teaching employees to monitor and report fraud. b. T A
15. Drawbacks to establishing a hotline for employees to report fraud include all of the following except: a. The expense of having a hotline. b. Many incidents reported are hoaxes motivated by grudges and other non-fraud reasons. c. Some symptoms reporte D
16. “Predication of fraud” is defined as: a. Reasonable belief that fraud has occurred or is occurring. b. Irrefutable evidence that fraud has been committed. c. Motivation for committing fraud. d. Punishment of fraud perpetrators.
17. Which of the four types of evidence includes inter- rogation and honesty testing? a. Testimonial. b. Documentary. c. Physical. d. Personal observation.
18. The three elements present in most cases of fraud are: a. Theft act, rationalization, and opportunity. b. Pressure, opportunity, and conversion. c. Theft act, concealment, and conversion. d. Theft act, pressure, and opportunity.
19. Most often, victims of fraud do not take legal action against perpetrators. This is because legal action can be: a. Unproductive. b. Embarrassing. c. Expensive. d. All of the above.
20. The best argument for taking legal action against fraud perpetrators is: a. Huge cash settlements from prosecuting fraud are an excellent source of revenue. b. Legal action usually results in positive publicity for the company. c. Prosecution of perpe
21. Factors that are usually associated with high levels of employee fraud include all of the following except: a. Negative feedback and lack of recognition of job performance. b. Perceived inequalities in an organization. c. Long and difficult hours shar
22. Which of the following is true regarding the Sarbanes-Oxley Act of 2002: a. Companies with revenues exceeding $10 mil- lion must have a whistle-blower system in place. b. Public companies must have a whistle-blower system in place. c. Public companies
1. People will often be dishonest if they are placed in an environment of: a. Poor controls. b. High pressure. c. Low integrity. d. lose accountability. e. All of the above.
2. Which of the following factors contribute to creating a corporate culture of honesty and openness? a. Hiring honest people. b. Performing criminal background checks. c. Not having an open-door policy. d. Having a well-understood and respected code of e
3. Which of the following personnel and operating policies contribute to high-fraud environments? a. Management by crisis. b. Rigid rules. c. High employee lifestyle expectations. d. Poor promotion opportunities. e. All of the above.
4. The single most effective tool in preventing and detecting fraud is usually: a. Monitoring employees. b. Having a good system of internal controls. c. Having a well-written company code of ethics. d. Following strict hiring procedures.
5. A company’s control environment includes: a. The tone that management establishes toward what is honest and acceptable behavior. b. Corporate hiring practices. c. Having an internal audit department. d. All of the above.
6. Which of the following factors generally results in a high-fraud environment? a. Hiring honest people. b. Providing an EAP. c. Autocratic management. d. Both a and b.
7. Which of the following aspects of fraud usually results in the largest savings? a. Fraud prevention. b. Fraud detection. c. Fraud investigation. d. It is impossible to tell.
8. Which of the following is usually the most effective tool in preventing and detecting fraud? a. Discouraging collusion between employees and customers or vendors. b. Effective investigations of fraud symptoms. c. Having a good system of internal contro
9. Which of the following is the typical fraud model that describes most firms? a. Fraud incident, assessing risk, investigation, reporting. b. Fraud incident, investigation, action, resolution. c. Assessing risk, fraud incident, investigation, resolution
10. The “tone at the top” is an important element in fighting fraud, which involves: a. Doing a good job of integrity risk assessment. b. Having a positive organization where effective fraud teaching and training is conducted. c. Setting a proper example
11. Which of the following is not a recognized method of eliminating fraud opportunities? a. Having good internal controls. b. Monitoring employees. c. Creating an expectation of punishment. d. Engendering employee goodwill by having lax rules.
12. Which of the following is not a reason identified by Deloitte why whistle-blowing systems fail? a. Lack of anonymity. b. Pressure to comply. c. Culture. d. Lack of awareness.
13. Alerting vendors and contractors to company policies often results in: a. Loss of interest in the organization by vendors. b. Discovery of current frauds and the prevention of future frauds. c. Strained vendor/purchaser relationships. d. Heightened in
1. Which of the following is true regarding fraud? a. It is easily identified. b. It is seldom observed. c. When a fraud occurs, there is no question whether or not a crime has been committed. d. Many witnesses are usually available when fraud occurs.
2. Which of the following is not a fraud symptom related to source documents? a. Duplicate payments. b. Missing documents. c. A tip from an employee. d. Photocopied documents.
3. Which of the following is a fraud symptom related to an internal control weakness? a. Lack of proper authorization. b. Lack of independent checks. c. Inadequate accounting system. d. Lack of physical safeguards. e. All of the above are fraud symptoms r
4. In the three elements of fraud (theft act, concealment, conversion), who is usually in the best position to detect the fraud? a. Co-workers and managers. b. Customers. c. Owners. d. Vendors.
5. When a person commits a crime: a. He or she usually becomes engulfed by emotions of fear and guilt. b. He or she will experience no changes in behavior. c. He or she usually becomes friendly and nice. d. He or she experiences a lower stress level.
6. Most people who commit fraud: a. Use the embezzled funds to increase their savings accounts. b. Give the embezzled funds to charity. c. Experience no change in their lifestyle. d. Use the embezzled funds to improve their lifestyle.
7. Which of the following is not a reason why people are hesitant to come forward with knowledge or suspicions of fraud? a. They often think that squealing on someone is wrong. b. They fear reprisal for being a whistle-blower. c. It is usually impossible
8. Which of the following is not one of the categories of employee fraud symptoms? a. Accounting anomalies. b. Analytical anomalies. c. Tips and complaints. d. Firm structure.
9. Embezzlement of assets reduces the left side of the accounting equation. To conceal the theft, the embezzler must find a way to reduce the right side of the accounting equation. A perpetrator would most likely reduce the right side of the equation by:
10. Which of the following is not a fraud symptom related to journal entries? a. Unexplained adjustments to receivables, payables, revenues, or expenses. b. c. d. Journal entries that do not balance. Journal entries without documentary support. Journal en
11. Which of the following is not a common internal control fraud symptom or problem? a. Lack of segregation of duties. b. Unexplained adjustments to receivables, payables, revenues, or expenses. c. Lack of independent checks. d. Overriding of existing co
12. Once in a while, someone commits fraud or another crime and does not feel stress. Such people are referred to as: a. Psychopathic. b. Altruistic. c. Philanthropic. d. Magnanimous.
13. Fraud is usually detected by recognizing and pursuing: a. Synonyms. b. Symptoms. c. Equity. d. Legends.
14. A letter is most likely to be fraudulent if: a. It is signed by only one person. b. It is addressed to an individual, rather than a department. c. It is a photocopy of an original letter. d. It is written on outdated company letterhead.
15. If a perpetrator has stolen assets, which of the following is the easiest method for concealing the theft? a. Reduce liabilities (such as payables). b. Manipulate dividend or stock accounts. c. Increase other assets (such as receivables). d. Increase
16. Which of the following is a common fraud symptom relating to ledgers? a. A ledger that does not balance. b. A ledger that balances too perfectly. c. Master account balances that do not equal the sum of the individual customer or vendor balances. d. Bo
17. Which element is not a common element of fraud? a. Concealment. b. Coercion. c. Conversion. d. Theft act. e. All of the above are common elements of fraud.
1. When detecting fraud, it is important that fraud investigators: a. Remain objective and neutral. b. Assume guilt. c. Assume innocence. d. None of the above.
2. Data-driven fraud detection: a. Determines the cost of fraud. b. Identifies possible fraud suspects. c. Looks for anomalies in databases. d. All of the above.
3. Once a buyer starts accepting kickbacks from a supplier: a. Prices often increase. b. Purchases from other vendors often decrease. c. The supplier usually takes control of the purchasing relationship. d. All of the above.
4. The most obvious disadvantage of the data-driven approach is: a. Databases are very large and often cannot be analyzed using analysis packages like ACL, IDEA, or ActiveData. b. High cost. c. The decrease in employee morale. d. None of the above.
5. Benford’s Law: a. Is usually unsuccessful as a fraud detection tool. b. Predicts that the first digit of random number sets will begin with a 1 more often than a 2, a 2 more often than a 3, and so on. c. Applies to personal ID numbers. d. All of the ab
6. A detection method that focuses on the kinds of frauds that can occur and then uses technology to determine whether those frauds actually exist is called: a. Fishing fraud detection. b. Data mining. c. Data-driven fraud detection. d. Benford’s Law.
7. When deciding which detection method to use, it is important to: a. Determine the advantages and disadvantages of each approach. b. Identify the costs involved. c. Determine which method will meet the client’s objectives. d. All of the above.
8. Fraud is best detected through financial statements by focusing on: a. Unexplained changes in financial statement balances. b. Consistencies. c. Intuition. d. Management’s behavior when financial statements are released.
9. The most effective way to convert balance sheets and income statements from position and period statements to change statements is to: a. Compare balances in the statements from one period to the next. b. Calculate key ratios and compare them from peri
10. Profit margin, return on assets, and return on equity are all examples of: a. Vertical analysis. b. Key financial statement ratios. c. Horizontal analysis. d. None of the above.
11. When vertical analysis is performed: a. Ratios are used to detect fraud. b. Changes in significant balance totals are examined. c. Financial statement balances are converted to percentages. d. Total revenues are compared to total expenses.
12. Horizontal analysis is different from vertical analysis in that: a. There is no difference between horizontal and vertical analysis. b. Horizontal analysis calculates the percentage change in balance sheet and income statement numbers from one period
13. Which of the following is an advantage of using data analysis software to detect fraud? a. It is a static approach, and results cannot be recombined in different ways. b. Data analysis software can only be used to analyze small data sets. c. Data anal
14. Benford’s Law is: a. The most expensive of all the digital analysis methods to implement and use. b. The most effective way to identify actual frauds. c. A method that uses vertical financial statement analysis. d. An effective way to identify anomali
15. If a search reveals that an employee and a vendor have the same telephone number, this result may indicate that: a. Vendors are overcharging for goods purchased. b. Employees may be establishing dummy vendors. c. Contractors are billing at the wrong r
16. When conducting financial statement analysis, which ratio will be the most useful in determining whether a company has erroneously inflated accounts receivable? a. Current ratio. b. Profit margin. c. Accounts receivable turnover. d. Debt percentage.
17. When trying to identify outliers, what is one of the best statistical approaches? a. A pie graph indicating the relative amounts. b. Stratification of cases by value. c. Time trending using the high-low slope method. d. The z-score calculation.
18. An advantage of using ODBC to import data into a data warehouse is that: a. ODBC doesn’t require the use of corporate database servers. b. ODBC compresses data when stored on a CD or DVD. c. ODBC automatically retrieves column names and types from the
19. The Soundex algorithm: a. Uses consonants but ignores vowels. b. Creates a numerical score representing how a word sounds. c. Is useful when fuzzy matching values. d. All of the above.
1. Financial statement fraud is usually committed by: a. Executives. b. Managers. c. Stockholders. d. Outsiders. e. Both a and b.
2. Which officer in a company is most likely to be the perpetrator of financial statement fraud? a. Chief financial officer (CFO). b. Controller. c. Chief operating officer (COO). d. Chief executive officer (CEO).
3. When looking for financial statement fraud, auditors should look for indicators of fraud by: a. Examining financial statements. b. Evaluating changes in financial statements. c. Examining relationships the company has with other parties. d. Examining o
4. The three aspects of management that a fraud examiner needs to be aware of include all of the following except: a. Their backgrounds. b. Their motivations. c. Their religious convictions. d. Their influence in making decisions for the organization.
5. Which of the following is least likely to be considered a financial reporting fraud symptom, or red flag? a. Gray directors. b. Family relationships between directors or officers. c. Large increases in accounts receivable with no increase in sales. d.
6. Many indicators of fraud are circumstantial; that is, they can be caused by non-fraud factors. This fact can make convicting someone of fraud difficult. Which of the following types of evidence would be most helpful in proving that someone committed fr
7. In the Phar-Mor fraud case, several different methods were used for manipulating the financial statements. These included all of the following except: a. Funneling losses into unaudited subsidiaries. b. Overstating inventory. c. Recognizing revenue tha
8. Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations. This is because: a. It is easier to implement good internal controls in a small organization.
9. Management fraud is usually committed on behalf of the organization rather than against it. Which of the following would not be a motivation of fraud on behalf of an organization? a. CEO needs a new car. b. A highly competitive industry. c. Pressure to
10. All of the following are indicators of financial statement fraud except: b. Unusually rapid growth of profitability. c. Threat of a hostile takeover. d. Dependence on one or two products. e. Large amounts of available cash.
11. During an audit, an auditor considers the conditions of the auditee and plans the audit accordingly. This is an example of which of the following? a. Zero-order reasoning. b. High-order reasoning. c. First-order reasoning. d. Fraudulent reasoning.
12. In the context of strategic reasoning, if an auditor only follows the established audit plan and does not consider other factors relating to the auditee, then this is an example of which of the following? a. Zero-order reasoning. b. Higher-order reaso
13. In recent years, many SEC investigations have taken place on the improper issuance of stock options to corporate executives. These practices increase executive compensation at the expense of shareholders. This practice is known as: a) Backdrafting s
1. The most common account(s) manipulated when perpetrating financial statement fraud are: a. Expenses. b. Inventory. c. Revenues. d. Accounts Payable.
2. Why might a company want to understate net income? a) to increase profits b) to increase stock price c) the gain consumer confidence d) to pay less taxes
3. Reported revenue and sales account balances that appear too high are examples of: a) analytical symptoms b) documentary symptoms c) lifestyle symptoms d) verbal symptoms
4. Horizontal analysis is a method that: a. Examines financial statement numbers from period to period. b. Examines percent changes in account balances from period to period. c. Examines transactions from period to period. d. None of the above.
5. Recording fictitious receivables will usually result in a(n): a. Sales return percentage that remains constant. b. Increased sales discount percentage. c. Increase in accounts receivable turnover. d. Increase in the number of days in receivables.
6. Comparing recorded amounts in the financial state- ments with the real-world assets they are supposed to represent would be most effective in detecting: a. Cash and inventory fraud. b. Accounts payable fraud. c. Revenue-related fraud. d. Accounts recei
7. Lifestyle symptoms are most effective with: a. Revenue-related financial statement frauds. b. Inventory-related financial statement frauds. c. Employee frauds. d. Accounts payable financial statement frauds.
8. Which of the following is not an inventory-related documentary symptom? a. Duplicate purchase orders. b. Missing inventory during inventory counts. c. Unsupported inventory sales transactions. d. All of the above are inventory-related docu- mentary sym
9. When looking for inventory fraud, an important question to ask is: a. What is the nature of inventory? b. What is the age of inventory? c. What is the salability of inventory? d. All are important questions to ask.
10. Which of the following ratios would not generally be used to look for inventory- and cost of goods sold–related frauds? a. Accounts payable turnover. b. Gross profit margin. c. Inventory turnover. d. Number of days’ sales in inventory.
11. In order to analyze financial statements for fraud, an auditor or fraud examiner should consider all of the following except: a. The types of accounts that should be included in the financial statements. b. The types of fraud to which the company is s
12. Last-minute revenue adjustments, unsupported balance sheet amounts, and improperly recorded revenues are examples of: a. Analytical symptoms. b. Documentary symptoms. c. Control symptoms. d. Perceptional symptoms.
13. Accounts that can be manipulated in revenue fraud include all of the following except: a. Accounts Receivable. b. Bad Debt Expense. c. Inventory. d. Sales Discounts.
14. Which financial ratio is not useful in detecting revenue-related fraud? a. Gross profit margin ratio. b. Account receivable turnover ratio. c. Asset turnover ratio. d. All of the above are useful revenue-related fraud detection ratios.
15. The asset turnover ratio measures: a. The average time an asset is used by the company. b. The average useful life of capital assets. c. Sales that are generated with each dollar of the assets. d. Assets that are purchased with each dollar of sales.
16. The most common way to overstate revenues is to: a. Record revenues prematurely. b. Abuse the cutoff line for recording revenues. c. Create fictitious revenues. d. None of the above.
17. Which of the following is a possible scheme for manipulating revenue when returned goods are accepted from customers? a. Understate allowance for doubtful accounts (thus overstating receivables). b. Record bank transfers when cash is received from cus
18. All of the following ratios are useful in detecting large revenue frauds except: a. Gross profit margin. b. Current ratio. c. Working capital turnover. d. Accounts receivable turnover.
19. Each of the following illicit revenue transactions is correctly linked with the financial statement accounts involved except: a. Recognizing revenues too early—Accounts Receivable, Revenue. b. Understate allowance for doubtful accounts—Bad Debt Expens
20. Identify which ratio is correctly linked to the information it could reveal about the company’s potential for revenue fraud. a. Gross profit margin—this ratio will increase if management overstates inventory. b. Sales return percentage—a sudden decrea
21. Which of the following is a common way to per- form financial statement analysis while searching for revenue-related analytical symptoms? a. Look for unusual changes in revenue-related account balances from period to period (trends). b. Look for unusu
22. Primarily occurring at the end of the year in an attempt to inflate sales, the practice of shipping more items to distributors than they can sell in a reasonable time period is known as: a. Lapping. b. Channel stuffing. c. Bill-and-hold transactions.
1. Which of the following is a primary type of trans- action that can create liabilities for a company? a. Purchasing inventory. b. Borrowing money. c. Selling purchased goods. d. Leasing assets. e. All of the above.
2. When accounts payable-related liabilities are understated, purchases and inventory are often, or the financial statements don’t balance. a. Overstated. b. Understated. c. Correctly stated. d. It is impossible to tell.
3. Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements because: a. It understates liabilities. b. It overstates revenues. c. It overstates net income. d. It overstates assets. e. All of t
4. The most common fraud involving car companies and the warranties they offer would most likely be: a. Understating accrued liabilities. b. Recognizing unearned revenue. c. Not recording or under recording future obligations. d. Not recording or under re
5. FAS 5 requires contingent liabilities to be recorded as liabilities on the balance sheet if the likelihood of loss or payment is: a. Remote. b. Reasonably possible. c. Probable. d. Not determinable.
6. Analytical symptoms of accounts payable fraud most often relate to reported “accounts payable” balances that appear: a. Too low. b. Too high. c. Too perfect. d. Unchanged.
7. Proactively searching for analytical symptoms related to financial statement fraud means that we are looking for accounts that appear: a. Too low. b. Too high. c. Unusual. d. All of the above.
8. When focusing on changes, you should consider changes from period to period in: a. Recorded balances. b. Relationships between balances. c. Balances of other non-similar companies. d. Both a and b. e. All of the above.
9. Overstating cash is usually difficult because: a. Cash balances can be easily confirmed with- banks and other financial institutions. b. Cash is hard to steal. c. Cash is normally not a fraudulent account. d. Cash is usually a small asset.
10. Inadequate disclosure fraud usually involves: a. Statements in the footnotes that are wrong but do not impact the financial statement. b. Disclosures that should have been made in the footnotes but were not. c. Both a and b. d. Neither a nor b.
11. When examining whether a company has under recorded accounts payable, each of the following ratios is helpful except: a. Acid-test ratio. b. Accounts payable/Purchases. c. Accounts payable/Cost of goods sold. d. Unearned revenue/Accounts payable. e. C
12. Each of the following is a symptom relating to understatement of liability frauds except: a. Original purchase-related records where copies could exist. b. Denied access to records, facilities, certain employees, customers, vendors, or others from who
13. Each of the following assets is correctly linked with how it can be overstated except: a. Inventory can be overstated by improperly capitalizing these assets. b. Marketable securities can be overstated because they are not widely traded, and it is dif
14. Which of the following factors does not make fraud more difficult to detect? a. Collusion with outsiders. b. Forgery, which GAAS auditors are not routinely trained to detect. c. Off-book frauds in which no records on the company’s books are fraudulent
15. A form 1099 with missing withholdings (where they should be reported) may be a fraud symptom for which liability account? a. Accounts Payable. b. Unearned Revenues. c. Contingent Liabilities. d. Accrued Liabilities.
16. In liability fraud, liabilities are most often: a. Understated. b. Overstated. c. Recorded as assets. d. Recorded as expenses.
17. Which of the following is usually the hardest fraud to detect? a. Liability fraud. b. Revenue fraud. c. Asset fraud. d. Disclosure fraud.
18. You observe that a company’s current ratio is dramatically increasing. This may indicate fraud in that: a. Probable contingent liabilities that will settle in the next year for an amount that can be estimated are not recorded. b. Accounts payable are
19. Of the following, the most difficult account for management to intentionally misstate is: a. Income Taxes Payable. b. Cash. c. Securities. d. Prepaid Expenses.
20. Which of the following is not a way to under record liabilities? a. Borrowing but not disclosing debt incurred on existing lines of credit. b. Claiming that existing debt has been forgiven by creditors. c. Not recording loans incurred. d. All of the a
21. When looking for accounting or documentary symptoms of fraud when a merger occurs, one of the first steps should be to: a. Make sure that the purchasing company got a fair deal. b. Make sure that the selling company properly disclosed its financial tr
22. Which of the following is a good place to look for inadequate disclosures? a. Board of directors’ minutes. b. Correspondence and invoices from attorneys. c. Confirmations with banks and others. d. Loan agreements. e. All of the above are good places t
1. Why does fraud seem to be increasing at such an alarming rate? a. Computers, the Internet, and technology make fraud easier to commit. b. Most frauds today are detected, whereas in the past many were not. c. A new law requires that fraud be reported wi A
2. Which of the following is not an important element of fraud? a. Confidence. b. Deception. c. Trickery. d. Intelligence. D
3. Fraud is considered to be: a. A serious problem that continues to grow. b. A problem that affects very few individuals. c. A mild problem that most businesses need not worry about. d. A problem under control. A
4. People who commit fraud are usually: a. New employees. b. Not well groomed and have long hair and tattoos. c. People with strong personalities. d. Trusted individuals. D
5. “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” is the definition of which of the following types of fraud? a. Employee embezzlement or occupation A
6. Corporate employee fraud-fighters: a. Work as postal inspectors and law enforcement officials. b. Prevent, detect, and investigate fraud within a company. c. Are lawyers who defend and/or prosecute fraud cases. d. None of the above. B
7. Investment scams most often include: a. An action by top management against employees. b. Worthless investments or assets sold to unsuspecting investors. c. An overcharge for purchased goods. d. Nonpayment of invoices for goods purchased by customers. B
8. Which of the following is not true of civil litigation? a. It usually begins when one party files a complaint. b. The purpose is to compensate for harm done to another. c. It must be heard by 12 jurors. d. Only “the preponderance of the evidence” is ne C
9. Future careers in fraud will most likely be: a. In low demand. b. In moderate demand. c. Low paying. d. In high demand and financially rewarding. D
10. Studying fraud will help you: a. Learn evidence-gathering skills. b. Avoid high-risk and fraudulent activities. c. Learn valuable interviewing skills. d. All of the above. D
11. Which of the following is the least reliable resource for fraud statistics? a. FBI agencies. b. Health agencies. c. Insurance organizations. d. Fraud perpetrators. D
12. Which of the following statements is true? a. On a per-incident basis, bank robberies are costlier than frauds. b. Fraud is often labeled the fastest growing type of crime. c. FBI agencies usually investigate frauds that occur within organizations. d. B
13. Which of the following is not an element of fraud? a. False representation. b. Accidental behavior. c. Damage to a victim. d. Intentional or reckless behavior. B
14. What is the best way to minimize fraud expense within an organization? a. Effective early detection of fraud. b. Effective investigation of fraudulent behavior. c. Effective prevention of fraud. d. Effective research of fraud. C
15. What is the most important element in successful fraud schemes? a. Promised benefits. b. Confidence in the perpetrator. c. Profitable activities. d. Complexity. B
16. Which of the following characters is least likely to be involved in a fraud? a. A middle-aged person with a middle management position. b. A long-haired teenager wearing leather pants. c. A recent college graduate. d. A senior executive who has signif B
17. Which of the following is not a common type of fraud? a. Direct employee embezzlement. b. Employee bribes. c. Executives embezzling from petty cash. d. Investment scams. C
18. Which of the following is not a form of vendor fraud? a. Overcharging for purchased goods. b. Shipment of inferior goods. c. Nonshipment of goods even though payment has been made. d. Not paying for goods purchased. D
19. Civil law performs which of the following functions? a. Remedy for violation of private rights. b. Remedy for violations against society as a whole. c. Punishment for guilt “beyond reasonable doubt.” d. Monetary fines for federal damages. A
Fraud fighting can include which of the following type(s) of careers? a. Professors. b. Lawyers. c. CPA firms. d. All of the above. D
21. Which of the following is not an example of employee embezzlement? a. Land conservation employees stealing equipment. b. Cashiers stealing money from the cash register. c. Angry employees vandalizing the building with spray paint. d. Salespeople overc C
22. Which of the following is not an example of vendor fraud? a. A vendor overcharges a contracting job that it completed on time. b. A vendor bills for services not performed. c. A vendor bills for goods not provided. d. A vendor has much higher prices t D
23. “Intentional manipulation of financial statements” describes which kind of fraud? a. Management fraud. b. Criminal fraud. c. Stock market fraud. d. Bookkeeping fraud. A
24. Which of the following is required to become a CFE? a. An individual must commit to abide by a strict code of professional conduct and ethics. b. Be an associate member, in good standing, of the ACFE. c. Be of high moral character. d. All of the above D
25. Which of the following is not true regarding the ACFE. a. It is the largest anti-fraud organization in the world. b. It has roughly 12,000 members throughout the world. c. The entire organization is dedicated to anti- fraud-fighting efforts. d. It is C
11 All of the following are ways to create a culture of honesty and high ethics except a) creating a positive work environment b) hiring the right kind of employees c)having top management model appropriate behavior d) eliminating opportunities for fraud D
Created by: fbanks1976
 

 



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